Yesterday afternoon Mark testified in front of the House Committee on Economic Development and Small Business (video here). He really touched on a lot of the greatest hits when it comes to the current state of the labor market and how we are thinking about the outlook. A copy of his slides are below for you to browse if you would like. But first, a brief recap:
Overall, it’s encouraging that the labor market has recovered from the pandemic. The workers have fully returned, and issues like distance learning, lack of childcare, fear of the virus, the impact of federal aid and enhanced unemployment insurance benefits and the like are in the rearview mirror. There are relatively fewer working-age Oregonians not looking for work today than there was pre-pandemic. There is not some reserve army of folks sitting on the couch playing video games. And yet a labor shortage still remains because firms are looking to chase market opportunities given consumer demand is so strong. The shortage is from very high labor demand, not a lack of supply based on the Oregon data.
Compounding the cyclically tight labor market is the structural demographic story of increased retirements. New, young workers outnumber retirements, so Oregon’s labor force is and is expected to grow but will do so at a slower pace than in past decades due to our now decades-long low birth rate, and slower migration. These demographic trends impact every single industry. An interesting question arose during the discussion yesterday about which industries young workers are going into in greater numbers, so we are adding that to the research agenda. One tidbit there is we know young Oregonians have returned to the trades in the past decade, but to what degree we see other trends in other sectors, we will take a closer look.
To increase the number of available workers for local businesses to hire and expand there are really two options. One is to see continued net in-migration to the state. As of 2021, Oregon still saw more young adults across all levels of educational attainment move into the state than move out. We do not have any details on the 2022 numbers, which will be out this fall. The other way to increase the workforce is through higher participation rates among people already living in Oregon. This is where our previous look at the Latent Labor Force comes in. If we were to address any or all of these historical disparities — differences across sex, race and ethnicity, and educational attainment — it would increase the size of the local workforce by much more than stronger migration every could.
Yesterday we talked about the number of Oregonians struggling with housing costs. There are two parts to housing affordability: the actual cost of housing (rent or mortgage payment) and household income. You can achieve better affordability via either, but ideally both ways. We would like to see incomes rising faster than housing costs, and also for housing costs to increase at a slower rate in general. It’s this last bit where there is better news on the horizon for renters nationwide and here in Oregon.
We know that the combination of strong underlying demographics, rising incomes, and the desire to drop roommates during a pandemic led to a household formation boom in recent years. This drove vacancy rates and for sale inventory down and prices up. Builders and developers responded to the tight housing market by trying to increase construction.
First, single family permits rose considerably, but have now fallen off as higher interest rates sapped the market in 2022. Here in Oregon single family starts are down 22% percent from spring 2021 to the end of 2022 (using quarterly data not individual month peak to trough). But notice how they’re kind of just back to pre-pandemic levels and not plunging further, or at least not yet. Our last forecast assumed another step down in single family starts in early 2023, but that was before interest rates dropped closer to 6 percent. There will likely still be some weakness, but today expectations are probably more for stability rather than further declines moving forward. That’s a silver lining.
Second, multifamily initially slowed in the pandemic but once the vacancies dropped and rents rose, there has been a rebound in activity. The timing of these increases have mostly offset the declines in single family starts, leaving total new construction activity in Oregon relatively flat. It’s down, about 12 percent peak to trough on a quarterly basis, but fundamentally it’s kind of flat relative to the years leading up to the pandemic. The real question at the moment is what happens with multifamily starts this year and next.
The reason I ask is the following chart. While housing starts are one thing, it’s another to finish construction and have a habitable unit for people to live in. Right now, due to the supply chain issues during the pandemic there are a lot more housing units nationwide under construction that not yet been finished. The pipeline of supply is full. The backlog of single family is starting to correct, both as supply chains get better and the higher rates sapped new demand allowing for some catch up. But to date the backlog of multifamily activity hasn’t slowed down in any meaningful sense. The last couple of months of multifamily permits nationwide are weaker, but that doesn’t really appear to be the case in Oregon, although month-to-month is very noisy locally.
As you can see in the chart this has been a building dynamic for quite some time. I have been a little hesitant to discuss just because we don’t have good local data on how this may or may not be the same or different in Oregon. There are some third party estimates out there for some markets/submarkets and Census estimates show a growing backlog in all regions of the country.
One way I’ve been trying to think about it is to look at Oregon apartment construction relative to the U.S. Here you can see that while Oregon multifamily permits are strong, as a share of the U.S. they’re lower now than in the years leading up to the pandemic (dark blue line). So the open question is does that mean the backlog of construction is less in Oregon relative to the national or regional numbers? Is our backlog simply proportional? Or does the relative slowing in the share reflect slower population growth? Or is it more than some other locations started building apartments and our local trends are what you would expect? We don’t have answers to those questions exactly, but they are worth thinking about.
The bottom line of all of this is better affordability on the housing cost piece of it, especially for apartments. The household formation boom slowed as affordability worsened. Combining a slower market with a record backlog of units under construction means slower rent increases and/or declines. The fears of the 2023 maximum allowable rent increase being 14.6 percent due to last year’s inflation are misplaced from a marketwide view. However that doesn’t mean there won’t be neighbors who see their rents go up by the maximum, or that different segments of the market will experience different trends. It’s that from a high level, macro view of housing, costs will get better, and affordability will improve via both components as incomes are increasing as well. The challenge is these improvements are coming off such a bad starting point for affordability.
Three final thoughts. One, the question for the outlook is how much do new multifamily starts slow in 2023 and 2024 due to the softening rental market? Single family appears to be at or near a likely bottom, but multifamily hasn’t really weakened yet. Two, we have seen no construction layoffs to date, despite the sharp drop in new single family activity. Yes, the backlog has kept workers busy as new orders slow, but if that market is bottoming, and nonresidential is good, and public works will acceleration as infrastructure work gets under way, it’s getting hard to see where actual construction layoffs will occur overall. Third, the risk there is a recession but the softening rents will feed into slower inflation which better supports growth as the Fed can ease off the brakes a little bit for that reason, even if they need to keep on the brakes due to the fundamentally better growth. Lots of moving parts, and feedback loops here to ponder as we meet with our advisors in the weeks ahead. Our next forecast is due out Wednesday, February 22nd.
We know Oregon housing affordability is bad and is a macroeconomic risk if working-age households cannot or choose not to live here. During the pandemic affordability worsened as we had a household formation boom resulting in very low vacancy rates and rising rents. Those dynamics are now shifting and there is a bit of encouraging news in the pipeline I will get to tomorrow. But first I wanted to highlight some new affordability work I have been doing.
There are myriad ways to measure housing affordability. Each metric has pros and cons. The most commonly used measure is if a household’s housing costs are more than 30% of income or not. It’s a quick and easy measure you can pull off published Census tables. It’s simple to understand. But it lacks any nuance. What about households where they have below market rate housing costs but still do not have enough money left over to put enough food on the table or buy winter coats? That’s where a measure like residual income comes in. It looks at how much money you have after paying for housing costs. It’s a superior measure in that it gets at what we really mean by being housing cost burdened. The challenge here is this measure is not readily available, you have to dig into the microdata and create it yourself. And there aren’t really any guides or handbooks on how much money you need to everything else besides housing. And so you can turn to something like MIT’s Living Wage calculation to figure out how much a household needs to live reasonably comfortably. There are other options here like the self-sufficiency standard, or United Way’s ALICE and the like. But for now I have used the Living Wage at least as a placeholder to get at these issues.
So what does the 2021 data show for Oregon? 21 percent of renter households in the state were living in poverty. However, 44 percent of rental households spend more than 30 percent of their income on rent each month. 54 percent of renters do not have enough income left over after paying rent to afford the basics. And 63 percent of rental households have incomes below MIT’s Living Wage calculation for Oregon based on various household sizes and compositions. There are hundreds of thousands of Oregon households who struggle with high housing costs relative to their incomes.
Oregon homeowners with a mortgage are relatively better off — because most homeowners have higher incomes, hence why they can better afford to buy versus rent — but still many struggle with high housing costs. 4 percent of homeowners have incomes below the poverty line. 20 percent of homeowners spend more than 30 percent of their income on their mortgage, and/or do not have enough income left over after paying their mortgage(s). 31 percent of homeowners in the state earn incomes below MIT’s Living Wage calculation.
One key distinction that gets lost in these numbers is the relative overlap between the different measures. For instance, there are about 48,000 Oregon households (3% of the total) that spend more than 30 percent of their income on housing but also have enough residual income left over to cover other living expenses. These households are traditionally cost-burdened but not necessarily living in hardship. This group is an indication that some measures could overstate the true number of neighbors struggling. After all if, say, a doctor chooses to spend lavishly on housing, they would still be able to pay the bills and put food on the table. That said, there are 100,000 Oregon households (6% of the total) that are in the reverse situation. These households spend less than 30 percent of their income on housing but do not have enough residual income left over to cover other living expenses. So, on net, this would indicate that the rough rule of thumb of 30 percent of income understates Oregon households who struggle with high housing costs. These different subgroups are important to note, but are relatively small pieces of the overall picture.
So what does all of this mean? The story here is not new, even if this particular chart uses new, updated data. It means we know there are hundreds of thousands of Oregon households that struggle with high housing costs relative to their incomes. There is always a great need for assistance for our neighbors, family, and friends. It means we need to see an increase in overall supply of housing production to help with broad affordability. This includes new market rate housing that meets the needs of high-income households so they are not competing with low- and middle-income households for the same units, and also more targeted investments to increase the supply of Affordable and workforce housing as that is where the current needs are greatest. I think there is some progress being made, or will be made for portions of this, which I will talk a bit more about tomorrow.
Also stay tuned. I have regional versions of the chart above. I know many cities and counties have similar type calculations from work they have done, or had consultants do. I won’t presume to know all the local details and defer to individual cities work. But I think one benefit here is at least using a consistent methodology and dataset across the state. In the next week or two I will finish up the regional income trends work and include the housing costs charts as well.
There has been no bigger economic shift in the past three years than working from home (WFH), primarily for white collar type employees, and the impact on urban cores nationwide. While our traditional data from the Census’ American Community Survey lags, it’s important to take stock of what we know so that new, incoming information can be better processed. In the months ahead we should get two new pieces of data to help us better understand the current landscape. In February, BLS should release the 2022 Business Response Survey which will include information on WFH from a firm’s perspective, and also get at the number or share of hours worked at home and in the office, providing better detail on hybrid work. In March, Census should release the 2022 population estimates by county and metro area, providing a better look at the geographic pattern of change and the potential impact on WFH on migration. But for now, let’s dive into the 2021 ACS microdata which was just released a couple months ago and I’ve now been able to process.
In 2021, working from home was obviously considerably more common than it was pre-pandemic. The share of workers that WFH increased from around 6% nationwide in 2019 to 18% in 2021. So while WFH increased, it was and is still a minority of the workforce because most of us need to go into a place of work to cook a meal, give care, or swing a hammer. Here in Oregon the increase was a bit larger, going from 7% in 2019 to 23% in 2021. We rank 5th highest in WFH across all states.
However, the patterns of WFH primarily looked like big cities sheltering in place. The highest rates of WFH, and the largest increases were in the primary cities of large metro areas. If you zoom in further, the biggest increases were in their urban cores and close-in neighborhoods. The second largest increases were seen in the suburbs of big cities. At a metro level, Portland’s increases from 2019 to 2021 ranked 11th largest among all metro areas nationwide. Among the Portland suburbs the largest increases were seen in Washington County, then Clark County, followed by Clackamas. The next biggest gains overall were in medium-sized metro areas, and finally rural economies. One implication here is that some traditional WFH hotbeds like Bend – long a national leader – no longer rank as high not because they did not see an increase, they did, but because dozens of large metros jumped ahead during the pandemic.
As such, WFH in 2021 did not look like it unleashed this massive new wave of migration and household relocation decisions. And while that is certainly true at the top level, if you dig beneath the surface, a clear impact on the types of migration seen in 2021 does emerge. In 2019, workers who did not WFH moved at a higher rate than those who did WFH. In 2021 that pattern reversed, where WFH migration rates picked up, and those who did not WFH slowed down. As a result, the share of people that moved in 2021 was tilted considerably more toward those who did WFH. It’s not as simple as this because so many things changed at once during the pandemic, but this relationship is certainly part of those changes.
When thinking about the implications and the outlook, high-cost states and metros saw a larger increase in the share of folks moving away that did WFH. Comparing worker migration patterns across states in 2019 and 2021, the relationship between WFH and outmigration from higher cost states strengthened considerably. Correlation is not causation, but the empirical patterns do make theoretical sense. And it’s important to keep in mind that even if the reason someone moves away is due to [insert favorite talking point here] it could still be underpinned by the fact that WFH now allows more people to do so.
Looking forward the real question is to what extent WFH impacts are more of a one-time adjustment, or a process that is just now getting underway. 2021 was still a messed up year. But I do think the 2022 county population estimates have the potential to shed light on these impacts. In 2021 the data do look more like sheltering in place, and urban cores nationwide lost population — including in some Sun Belt metros like Atlanta, Dallas, Nashville, Orlando etc in addition to places like Portland and Seattle. However there is that impact of WFH out-migration from high-cost areas under the surface. In 2022 we know Census estimates the West Coast experienced net out-migration. Do some of those other big cities revive, or does the general population patterns of urban-suburban-rural dynamics hold? Is it a general WFH impact, or are we seeing new or different regional patterns emerge, and a continuation of the high-cost vs low-cost regions? These are things I am closely watching.
Scroll through the slides for more details on the high level summary.
Finally, it’s always important to update your views based on the actual data. I will confess that back in 2020 I was more muted or less enthusiastic about the longer-term impacts of WFH. It wasn’t that it couldn’t be done or you couldn’t envision such a future, but rather about the possibility of such a large shift in business and workplace practices. However, the pandemic lasted a long time. It wasn’t until about 18 months later, in the fall of 2021 that there was the return to the office narrative, and then another wave of the pandemic hit a little while later. Today we are coming up on three years since the start of the pandemic. Some form of WFH is clearly here to stay for many more workers than it was previously.
Looking forward I think there will be some cross currents in the data. On one hand we will see things like hosts and hostesses, teachers, and security guards report they are no longer working from home, like you see some in the 2021 data. However some other occupations that maybe you wouldn’t have thought about as much in terms of tailors and seamstresses may continue to see higher WFH than in the past, especially if their place of work used to be in downtowns where there are now fewer commuters, or fitness instructors as customers are now more comfortable with remote workouts, etc. But I think the larger impact will be on the potential relocation decisions. Pre-pandemic it was clear that every corner of Oregon was average or above average on both WFH and broadband access, and Oregon was a place that year in and year out people wanted to live. But how all of that intersects with our long-standing concern about housing affordability being a repellant was a bit unknown. The upcoming 2022 data will help shed some light on that, but as I mentioned the other week, I think we will honestly need to see the 2023 data to get a more complete picture, even as we don’t really have the luxury of waiting around for that.
On Monday I was fortunate enough to be able to take part in Klamath County Economic Development Association‘s Economic Summit. Once again this year I was able to tag-team the economic discussion with Damon Runberg, formerly of the Employment Department and now with Business Oregon. As I was putting together my presentation and figuring out how Klamath’s economy is both doing and how it fits into the statewide picture, I was struck by quite a few things that I thought I should share here as well.
First, just to set the stage, employment in Klamath County has fully recovered. As we have discussed previously, we know that the state’s smaller and medium-sized metros and rural areas are seeing the strongest recoveries compared to large metro areas. Klamath is no exception, and outpaces the typical rural county by a percentage point or two as well. Damon noted that while Klamath’s current estimates of employment look good, they will look even better in the months ahead once the annual benchmark revisions are done as the county’s actual payroll records in the QCEW data are much stronger than those seen in the published monthly data. (For those of you looking at any current county data today, this upward revision will be broadly true for all counties.)
Second, it’s not just jobs but also income growth that has been strong. This goes for both total personal income that includes transfer payments like Social Security and the recovery rebates, and underlying growth excluding those transfers. During the pandemic, total income in Klamath County increased by more than 20%, or more than 10% per year in 2020 and 2021, which outpaced the state and nation. Looking forward, Social Security accounts for about 10% of all income in Klamath, meaning this year’s 8.7% COLA increase raises countywide income by 0.8 or 0.9 percent, a larger amount than the Oregon and U.S. average.
Unfortunately, the good income growth has not or at least not yet translated into a noticeable reduction in poverty in the county. Poverty rose back in the 1980s and 1990s as the Timber Belt suffered economic decline and has largely held steady in the 15-20% range which is noticeably higher than the state or nation overall. This is, by far, the most pessimistic chart I have and a good reminder that even in good macroeconomic times, many of our neighbors still struggle.
Third, while Oregon’s population overall is not booming, the same cannot be said for Klamath. In the past 5+ decades, Klamath’s population has grown faster than Oregon 7 times. Twice back in the 1970s, and then again in 2018, 2019, 2020, 2021, and 2022. Part of that is the slowdown at the state level, but part of it is the acceleration at the local level. When the official 2020 Census data came out, Klamath’s population was noticeably above expectations or recent estimates at the time. That stronger growth has continued since, with the latest 2022 estimates from Portland State already above the forecast for 2025 and nearly to the 2030 population forecast. While Klamath’s natural increase in the population is negative, like the state, the local total fertility rate is more like 1.9 compared to 1.4 at the state level. This should bode relatively better for future population gains, even as migration is by far the biggest factor.
Note: I am showing two sets of population estimates for the 2010s. In dark blue are the current published estimates from Portland State. In light blue are the estimates published by the BEA. The reason is technical, but important. BEA has gone ahead of done some preliminary work to revise the 2011-2019 county population figures, whereas Census and PSU have yet to publish their intercensal revisions. The big jump you can see in the dark blue line in 2020 will be less pronounced once the intercensal revisions are complete, which is why the light blue BEA estimates are important to note. The rebound and acceleration in Klamath growth did not start in 2020, but rather in the years leading up to the pandemic.
Finally, key questions are always about who moves. Clearly more people are voting with their feet and choosing to live in Klamath than choose to move away, but who are these new residents? Broadly speaking Klamath is gaining population across all age groups. In particular, many more 20- and 30-somethings from elsewhere in Oregon are choosing to move to Klamath, while many 50- and 60-somethings from outside the state are choosing to move to Klamath in recent years. In the Census data Klamath loses population to both the Rogue and Wilmette Valleys but gains from the Coast, the Gorge, and Northern California. In the IRS data the patterns can looking somewhat different depending upon the year. Now, in the most recent Census data the net gains are coming from low- and middle-income households, and those without college degrees. Unfortunately, we are not able to get crosstabs on that to separate out Oregon Institute of Technology grads moving away to start their careers, or the impact of workers versus retirees at the income level. But certainly, something worth noting in the data.
Thanks again to KCEDA for having me and I was happy to be able to discuss some good economic news for a change, especially given our most recent state economic and revenue forecast and the uncertain macro outlook.
The combination of the latest population estimates, the many conversations we are having about them, and Willamette Week‘s latest issues highlighting ideas to improve Portland has me revisiting some work we did early in the pandemic. At a high level, we tried to get at the different sources of demand for downtowns or urban cores. Local residents who live in the areas are one source as they go about their everyday lives. Commuters coming in to work are another source, primarily during the daytime. Visitors — both from the suburbs, and tourists – are the third source, primarily during the evenings and on the weekend.
My main point is that all of these sources of demand are important. Many discussions are surrounding the impact of working from home and the loss of commuters. That is a structural change that really impacts the built environment given the large cluster of office buildings and the hub and spoke transportation network. While not the biggest source of downtown demand from a business perspective, many firms relied on the lunch crowd to prop up overall revenues and sustain more hours of operation. Commuter demand did not go to zero, but has declined significantly in urban cores across the country.
Retrofitting unused or underutilized office buildings to build more residential is a great idea. This is a heavy lift as many buildings cannot be converted, but where feasible it should be pursued, and policies can help make more of those possibilities feasible as are now currently being discussed. This helps solve two problems: our historical underproduction of housing, and repurposing some of the newly empty office space. Eventually offices will fill back up with overall economic growth as employment and start-up activity increases. But that process will take years at best, and possibly decades. In the meantime, last time I checked in with Multifamily Northwest and their Apartment Report, vacancy rates in the urban core were very low. Increasing resident demand can help jumpstart the process.
All of that said, when I try to decompose the sources of demand, it is the third piece, the destination demand that is largest. This comes from out-of-town visitors staying in hotels, doing touristy stuff even if on business and not vacation. But it also comes from local residents who head downtown to go out to eat, take in a show, go shopping on the weekend and things like that. The cluster effects of having many retail and leisure businesses all close together is real.
As one of our advisors points out there is a catch-22 type element to this discussion. As a community and an economy, we have to provide reasons for people to be downtown, which in turn will generate more revenue for businesses to be located there and/or increase hours of operation, but if residents don’t feel safe or those businesses don’t exist or aren’t open, then fewer people will want to visit and so on.
Lastly, another advisor notes that the commuter demand hasn’t been lost from a regional perspective, but rather has shifted out of the urban core and into smaller, neighborhood or regional commercial areas. The importance of those from an everyday living, and planning perspective are higher today than they were a few years ago.
Definitions: Urban Core here is the area between I-405 and the Willamette River. Other Services includes things like barbershops, nail salons, parking garages, and dry cleaners, among others.
Last week the Census Bureau gave Oregon a lump of coal*, I mean they released the 2022 population estimates for the nation and states. We need to talk about it. Consider this post a down payment, with future installments to come as we get more data and have more time to reflect on what it may mean.
First, there are two sets of population estimates for Oregon. Our friends at Portland State’s Population Research Center are the official arbiter of Oregon population estimates for the years between the big decennial censuses (so-called intercensal years). Top line figures are usually released in mid-November. The Census Bureau also produces population estimates for the entire country. State data is usually released in December with cities/counties/metros a couple months later. PSU provides a local, accessible set of numbers in a more timely and granular way. Census provides nationwide numbers using a consistent methodology so can more readily compare across areas. Both estimates have value, even if the PSU ones take precedent in terms of official and policy use in the state.
It’s important to keep in mind that at a big picture level, both estimates are in agreement at Oregon’s population is not growing quickly. The slowdown is coming from all the major components of growth including fewer births, more deaths, and less net migration. If there were any lingering questions about whether Oregon saw a pandemic-related migration boom to the state, those are now long gone. (I see this crop up in conversation quite a bit.) When we turn from the big picture to the specifics, we see clear differences in the sets of estimates. Portland State estimates show slowing, yet positive growth. Census estimates show a sharper slowdown with outright population losses in 2022.
I’m including our latest forecast in the chart about for a few reasons. One, our office’s job is to forecast the state economy and revenues. Population growth is vital to our economic trajectory as it allows local firms to grow and expand at a faster pace. Two, it also shows the subdued outlook our office already had for future population growth. Now, this outlook has been revised down relative to our pre-pandemic expectations, but even prior to the latest data release the outlook was much milder than I think the conventional wisdom realized.
Naturally the questions that follow are things like “what does the slowdown or even population losses mean?” and “how can you forecast a rebound in growth?” And as I led off with, consider this a down payment on the discussion.
As laid out a few months ago ahead of the data, our expectations were for a rebound in population growth in 2022. The reasons were twofold. Migration to Oregon is pro-cyclical. As the economy rebounds, migration has historically followed. The number of surrendered driver licenses at Oregon DMVs is running at a higher level than pre-pandemic, pointing toward a rebound of inbound migration to the state. Those conditions still exist today. So why the continued slowdown or even population losses? That’s hard to answer today. Here is a list that begs more questions than provides answers.
First, 2022 population estimates are a July 1st, 2022 number. The year-over-year change is from July 1st, 2021 to July 1st, 2022. That’s still a time period that was impacted by the fallout and recovery from the pandemic. As I wrote the other month, I’d really like to know the 2023 numbers to get a better gauge on what is more of a temporary disruption versus a fundamental shift. We don’t have that luxury of course, but there is a chance this is a factor.
Second, how much of this is driven by working from home (WFH) and/or housing affordability? Oregon has long been a national leader in WFH but we have among the worst housing affordability. When workers needed to have easier/more direct access to employers for occasional meetings, staying on the West Coast may have made more sense. Now, with more freedom to live anywhere and fewer requirements for in-person work or meetings, moving to a more affordable location is easier. At least this applies to the 1/3 of workers who can WFH and not to the 2/3 of workers who have to go into a place of business to cook a meal, provide care, or swing a hammer. I’ll have more on WFH soon as I’ve been digging into the ACS data.
Third, how much of this decline is driven by [insert favorite talking point here]? As I mentioned previous a lot has been made about the relative slowdown or losses in blue states with a corresponding increase in red states. As of the 2021 data it was very much an urban-suburban-rural dynamic rather than a red state-blue state dynamic. How does the 2022 data shake out when we get it in March from Census? The PSU estimates show the weakness is in Multnomah. I’m curious to see if the Census estimates think that weakness from urban cores has spread, or if it remains the urban-suburban-rural dynamic. The fact that Oregon’s largest metro area’s fastest growing suburb also happens to be located in a different state complicates our numbers more than in other states. But if the slowdown and population weakness has spread beyond the urban core, then I’d be much more pessimistic about the outlook. To the extent we are still seeing the fallout from the pandemic, WFH, and urban core issues then it’s a little easier to identify and address rather than a general, societal shift in preferences of where people want to live.
Fourth, along these lines why do people move? Well, at least pre-pandemic it’s important to remember that hardly anybody moves. Most people do not move, and if they do happen to move they do not move very far. A key reason is family, and ties to a community. An issue here for Oregon is our low birthrate, which both contributes to slower population growth and literally can mean less familial ties, or fewer reasons to stay or move here. Washington saw negative domestic migration in 2022 as well according to Census, but their higher birthrate was enough to offset those losses and see an overall population increase. Oregon does not have that demographic luxury.
For those who do move, they tend to move for jobs and housing. Jobs are plentiful today and our average wages are rising much faster than the nation’s. But the labor market is tight everywhere and it’s easier today to find a job pretty much anywhere than it was last decade. That likely erodes some of Oregon’s relative attractiveness, while housing affordability is a hinderance at best, or an outright repellent at worst. All of this matters, but so do broader societal preferences on where people want to live, which are in part driven by those fundamentals but also squishier subjects like quality of life, or [insert favorite talking point here]. And it doesn’t even have to be that Oregon is deteriorating or whatever, but even a relative shift in people believing better opportunities lie elsewhere could results in slower population gains locally.
Fifth, one area needed for more research and analysis is on the composition of the changes in the population. Are we seeing continuations of the household formation boom that offsets the slow-growing population in the housing market? Is the slowdown due to prime working-age population trends, or more about families and/or retirees? Given the traditional economic data on jobs, income, and sales it’s hard to see a fundamental shift in the working-age population. And some work I had been doing prior to the new estimates being released show that younger adults were still moving to Oregon on net during the pandemic, across all levels of educational attainment. Did this change in 2022? Or is the continued slowdown or losses more about families and retirees. Not that that would be good nor even a silver lining of sorts, it’s still an unpleasant conversation to have all the way around, but better understanding these changes is important.
Sixth, there are direct labor market impacts from slower population growth. It’s not necessarily about outright declines per se but rather smaller gains than anticipated. Comparing our office’s pre-pandemic forecast with current estimates from PSU shows 44,000 fewer neighbors today and at traditional LFPR for migrants there are 26,000 fewer workers today than expected. With current Census estimates the relative shortfalls are more like 84,000 fewer neighbors and 50,000 fewer workers than expected that firms could hire.
These are real impacts relative to expectations, even if they are not about outright declines. And should population growth remain subdued and not rebound, these relative changes would have a big impact on the trajectory of the state’s economy and associated tax revenues. That’s ultimately why our office is so focused on it. Overall economists believe incentives matter, and people vote with their feet. Right now, at least during the pandemic and its immediate aftermath, fewer people are choosing to live here relative to historical patterns.
*H/T to Tom Cusack on Twitter for the lump of coal analogy
Starting in January, Social Security benefits will increase by 8.7 percent, the largest cost-of-living-adjustment in the past 40 years. Of course the large COLA is a direct result of the high inflation we have experienced in the past year. Many seniors are on fixed incomes. 3 in 10 Oregon seniors essentially rely entirely on Social Security for all of their income, and for nearly 6 in 10, Social Security makes up more than half of their income. As such this hot inflation has really impacted their budgets and hurt their ability to keep pace with the cost of living.
The good news is inflation is slowing and the COLA is accelerating. The net impact is a macro tailwind next year. In recent years, Social Security accounts for about 5.5 percent of total U.S. personal income, and 6.6 percent here in Oregon*. That means that next year’s 8.7 percent increase will boost total U.S. income by 0.5 percent and Oregon’s total income will increase by 0.6 percent. While half a percent may seem like a small number, it’s actually a significant increase. It is equivalent to adding 1.4 million jobs nationally paying the average wage, or 22,000 jobs in Oregon.
In terms of the income impacts, the biggest dollar increases will be in the locations with larger retirement-age populations. This means Portland (Multnomah) in Oregon and California nationally will see the largest increases in overall income because that’s where the largest number of people live, both young and old. However, the relative impacts, or where the local increase will be largest in percentage terms has a different pattern. Communities where the retirement population accounts for a larger share, or where per capita economic activity is generally lower, meaning transfer payments are a larger share of income to begin with, will see the biggest percentage increases. Broadly speaking, these local economies tend to be more rural than urban.
Here’s what that looks like across Oregon. Social Security in our coastal counties, and in much of Eastern Oregon account for more than 1 in 10 dollars households take home. The state’s urban areas along the I-5 corridor and across the mountains in Bend generally have a lower share of total income derived from Social Security. As such the upcoming COLA will boost aggregates incomes in Curry County on the South Coast by 1.3 percent, compared to a 0.4 percent increase in Multnomah.
The second map looks at the increase in total income by state due to the upcoming COLA. It ranges from West Virginia’s 0.9 percent increase as the largest to California’s 0.3 percent as the smallest. These relative dynamics matter in terms of the macro impacts, even if at the micro level every eligible household will receive the same percentage increase.
Overall, social security and retirement income in general are growing at an above-average pace due to demographics. However next year we will see the double effect of a fundamental increase in an aging population and larger than average increases per person due to inflation. Even if these COLA gains are playing catch-up to reality, they are a real macro boost in the year ahead.
* Note this uses total personal income excluding refundable tax credits from the BEA as to strip out the impact of the recovery rebates in the calculation.
One economic bright spot during this cycle has been the strong, inclusive recovery. This goes for income and employment trends by educational attainment, gender, geographic location, and race and ethnicity. This does not mean that equity abounds. We know that large, historical disparities remain. What I mean by an inclusive recovery is that these disparities did not widen, and in some cases they have actually declined somewhat in recent years. Further efforts and progress are needed to achieve equity as many disparities remain. However, the fact that these did not widen during the pandemic is certainly a glass half full, if not a bit more.
Data housekeeping note: The traditional real-time economic data for Oregon generally has too small of sample sizes to truly get at economic trends by race and ethnicity. We generally have to wait for the annual American Community Survey data to be published by Census, and then wait until the underlying microdata is released to go in and crunch the numbers ourselves. ACS data comes out with nearly a full year lag. For example the 2021 ACS data was just released recently, and this post uses that new information.
In order to not bury the lede I am pulling out this first chat looking at median household incomes in Oregon for Black, American Indian and Alaska Native, and Hispanic or Latino households relative to their white, non-Hispanic neighbors. I’ll get into the caveats in a minute, but frankly this is a really encouraging chart.
We know that the racial poverty gap has been narrowing in the past decade. That is tremendous news in that fewer of our friends, family, and neighbors are living below the federal poverty threshold. But to be honest, for much of the past decade we didn’t exactly see the improvements in poverty translate into higher incomes further up the distribution for many Black, Indigenous and People of Color in the state. It was as if we saw a shift of those living just below poverty to living just above poverty. An improvement is still an improvement, but it still meant many of our neighbors, and particularly our BIPOC neighbors, were and are struggling.
But what the new data shows is that the income gaps across different races and ethnicities in Oregon appears to be narrowing as well. Median incomes, of those for the typical Black, Indigenous, and Hispanic household still lag behind their white, and Asian peers, but the gap has narrowed in recent years. What used to be gaps of 20-40% now appear to be more like 10-20%. Sizable, yes. But smaller than anything in the past 20 years.
Now for the caveats. While we see some upward trends in recent years, especially for our Hispanic and Latino neighbors, we are mostly talking about one year of data. And it is 2021 data at that, a year still greatly impacted by the pandemic. Keep in mind that Census did not publish official 2020 ACS data due to the low response rate. I have omitted even the 2020 “experimental estimates” as they call them here and trended out the differences between 2019 and 2021, hence the dotted lines. There is a chance that the improvements seen in the chart above are more about data quality or a funky pandemic year. I don’t know that for sure. I am not calling into question the Census Bureau. But I do have my data spidey senses up and am wondering about it. I really do look forward to the 2022 and 2023 data to confirm that these gains are sustained.
The next set of charts looks at the 21 year trend for inflation-adjusted median incomes by race and ethnicity in the state. Here you can see these differences over time. Some of the volatility, particularly among our Pacific Islander neighbors, is likely due to sample sizes, but broadly speaking the trends are clear.
Next we turn to employment trends in Oregon by race and ethnicity. We are focusing on the employment rate for prime working-age Oregonians, or those between the ages of 25 and 54 years old. This calculation shows the share of folks with a job and gets away from the unemployment rate or labor force participation rate questions about whether or not someone is actively looking for a job. Now, here I am including those 2020 experimental estimates as I think they do make a bit more sense when examining the employment data, but the focus should be on the larger trends, and the changes from 2019 to 2021 specifically.
The big picture summary here is that many of these employment rate differences held steady. Comparing employment rates in 2019 to 2021 by race and ethnicity to the economy overall finds that the differences for white, non-Hispanic, Hispanic or Latino, and American Indian or Alaska Natives is the same. The employment differences saw improvements for Asian and Black Oregonians, again, relative to the overall employment rate. And the differences worsened somewhat for Pacific Islanders, dropping from just above to just below the overall prime-age EPOP for the state.
While there are clear historical disparities, I could not find where these disparities widened noticeably during the pandemic. Now, just as with the income data, I very much look forward to seeing the 2022 and 2023 numbers and updating our look at Oregon.
Finally, highlighting and exploring the data is one thing. However explaining the differences can be more difficult, or more uncomfortable to discuss. Now, there are some underlying reasons why these gaps or disparities emerge. Research finds that differences in individuals’ work experience, the occupations they enter into, and their level of educational attainment all drive some of the topline differences in employment, poverty, and income. However these factors never explain all of the differences. The portions unexplained by standard data in the models is generally considered to be due to harder to measure things like broader societal factors or outright discrimination. And these factors also drive some of the other data used to explain the differences to begin with.
As just one example, but one that is large enough to be seen in Census data, let’s take a look at institutionalized prime working-age men in Oregon. Overall prime-age Black men in Oregon have an employment rate that is 8.6 percent lower than all prime-age men in the state. One key factor here is the larger share of prime-age Black Oregon men who do not live on their own but in so-called group quarters, and specifically in institutional group quarters like correctional, mental, or for the elderly, handicapped, or poor. This accounts for 1 in 20 prime-age Black men in the state, and means that is 1 in 20 that are not living or working in the broader society. And while factors such as this do not explain the entire employment rate difference, mathematically it does account for 3.2 of the 8.6 percentage point difference. And this also highlights one reason why policies aimed at improving labor market outcomes for those with criminal records also matter, and how that impacts these bigger picture disparities seen in the data.
Just a few charts for your Friday. Affordability is important because housing is a big part of household budgets, can impact migration trends, and construction activity that is part of broader economic growth. The runup in home prices earlier in the pandemic are now reversing as rising interest rates have pushed ownership affordability to its worst point in recent decades. November home sales data is now available, and more importantly I have updated regional household incomes across the distribution so we can get a better, more updated look at relative affordability. All of these charts will be similar, but based on local incomes, local property taxes, and local home sales prices they do differ slightly.
In terms of the direct economic impacts, bad affordabilty hurts household bugets, and reduces volumes of activity when it comes to new housing starts, and existing home sales. Improvements will come. The combination of lower interest rates, rising incomes, and falling prices this year and next will bring overall affordablity back to the historical range. Sales volumes and housing starts will revive along the way. See our most recent forecast for more on this (PDF pg 19).
First, let’s take a look at Oregon’s biggest market, the Portland metro region. Seasonally-adjusted prices are down about 4 percent based on the latest data. Sales volumes are down 40 percent, new listings down 25 percent, and inventory is up 95 percent over the past year. These are the impacts due to the steep drop in affordability which priced out many potential buyers. Today, 19% of the Portland area households are estimated to be able to afford the monthly payment on the median home sold. This is a decline of 131,000 households since the start of the year.
Second, let’s go across the mountains over to Bend. Overall the Bend market really struggles with affordability. I’ll have more on this in the regional income update that is in the works, but Bend’s affordability looks better than previously estimated based on the updated incomes. There has been a big increase in incomes and an upward skew in the distribution in Bend during the pandemic, meaning more local households can afford housing. Currently 14 percent of households could afford the monthly payment, a decrease from 23 percent at the start of the year.
Third, we’re heading back to the valley and looking at the Salem market. Currently 22 percent of local households could afford the median sold home last month, a decline from 38 percent at the start of the year.
Fourth, let’s head south to the Eugene market (Lane County). Currently 20 percent of local households could afford the median sold home last month, a decline from 36 percent at the start of the year.
Fifth, we are heading further south down to the Rogue Valley and looking at Medford (Jackson County). Currently, 28 percent of local households could afford the median sold home last month, a decline from 38 percent at the start of the year. While the drop in interest rates is pricing households back into the market, November prices in the Medford market fell noticeably, driving the increase you can see in the chart last month.
As mentioned the other day, stay tuned for more on regional income trends over time. I have now finished the data work but need to pull everything together in one place.
Mark McMullen
Josh Lehner
Oregon Office of Economic Analysis 